Credit Supply and Productivity Growth

Abstract

We study the impact of bank credit on firm productivity. We exploit a matched firm-bankdatabase covering all the credit relationships of Italian corporations, together with a naturalexperiment, to measure idiosyncratic supply-side shocks to credit availability and to estimatea production model augmented with financial frictions. We find that a contraction in creditsupply causes a reduction of firm TFP growth and also harms IT-adoption, innovation,exporting, and adoption of superior management practices, while a credit expansion haslimited impact. Quantitatively, the credit contraction between 2007 and 2009 accounts forabout a quarter of observed the decline in TFP.

Keywords: Total factor productivity, Credit risk, Credit, Credit demand, Credit expansion, Credit Supply, Productivity, Export, Management, IT adoption, interbank, TFP, intermediate input, productivity growth

JEL Classification: D22, D24, G21, E01, E52, D4, O4